US energy department calls for market reforms

24 August 2017

Low-cost abundant natural gas and the growth of renewable energy are accelerating the premature retirement of baseload power plants, particularly coal and nuclear ones, says a report from the US Department of Energy (DOE). This, it suggests, is putting the resilience of the USA's electricity grid at risk.

Energy secretary Rick Perry issued a memorandum in April requesting DOE staff conduct a study to examine electricity markets and reliability. Specifically, the study was to examine three issues: the evolution of wholesale electricity markets; whether wholesale energy and capacity markets adequately compensate all energy forms on their merits; and, regulatory burdens on the energy industry.

The DOE has now published its study, titled Staff Report to the Secretary on Electricity Markets and Reliability. The study, it says, identified several critical issues central to protecting the long-term reliability of the electricity grid.

"It is apparent that in today's competitive markets certain regulations and subsidies are having a large impact on the functioning of markets, and thereby challenging our power generation mix."

Rick Perry,US Energy Secretary

Evolving market conditions and the need to accommodate variable renewable energy (VRE) resources have led to the increased flexible operation of generation and other grid resources, the report says.

"Some generation technologies originally designed to operate as baseload were not intended to operate flexibly, and in nuclear power's case, do not have a regulatory regime that allows them to do so."

Traditional baseload generation - particularly coal and nuclear - has been negatively impacted by the increased use of natural gas and renewable energy, as well as low growth in electricity demand and "a host of policy issues".

"Hydropower, nuclear, coal and natural gas power plants provide essential reliability services and fuel assurance critical to system resilience," according to the study. "A continual comprehensive regional and national review is needed to determine how a portfolio of domestic energy resources can be developed to ensure grid reliability and resilience."

The report recommends the DOE and other federal agencies accelerate and reduce costs for the licensing, relicensing and permitting of grid infrastructure such as nuclear, hydro, coal, advanced generation technologies and transmission. For nuclear power, the report says the Nuclear Regulatory Commission should be "encouraged to ensure the safety of existing and new nuclear facilities without unnecessarily adding to the operating costs and economic uncertainty of nuclear energy". It suggests nuclear safety rules are revisited under a risk-based approach.

In a 23 August letter accompanying the newly-released study, Perry says: "This review is something that was long overdue. The industry has experienced massive change in recent years, and government has failed to keep pace. This report examines the evolution of markets that has occurred over the last 15 years. Policy makers and regulators should be making decisions based on what the markets look like today, not what they looked like years ago."

He added, "A reliable and resilient electric grid is critical not only to our national and economic security, but also to the everyday lives of American people."

Perry also said, however, that certain regulations and subsidies are having a large impact on the functioning of markets, and are thereby challenging the country's power generation mix.

"It is important for policy makers to consider their intended and unintended effects," he said.

Industry reaction

Exelon - operator of the largest nuclear power fleet in the USA - welcomed the DOE's call for urgently needed energy market reforms.

"These reforms will help preserve clean energy sources and ensure critical American assets remain part of the mix, including baseload nuclear plants that provide more than 60% of our nation's emissions-free energy," it said.

"The US Department of Energy's electric grid study reaffirms our view that nuclear energy is a key and necessary contributor to a clean, reliable and resilient electric grid," said Nuclear Energy Institute president and CEO Maria Korsnick. "Nuclear energy is more than just clean, baseload electricity on our grid. Nuclear plants have fuel on-site, in the reactor, ready to use, for 18-24 months, and our hardened facilities weather extreme elements in all seasons."